The White House’s case for a big deficit deal
A lot of Democrats took one look at the McConnell plan, which would raise the debt ceiling without substantive fiscal concessions, and saw their way out of this mess. But not the White House. What’s come clear in recent weeks is that the Obama administration is much more intent on reaching a major deficit deal, and much less intent on making revenues a major part of it, than most observers assumed.
That’s led them to offer Republicans a deal that is not only much farther to the right than anyone had predicted, but also much farther to the right than most realize. In addition to the rise in the Medicare eligibility age and the cuts to Social Security and the minimal amount of revenues, it’d cut discretionary spending by $1.2 trillion, which is an absolutely massive attack on that category of spending.
This deal isn’t just a last-ditch effort to save the economy from the damage of a federal default. The White House would far prefer this deal to the McConnell plan, or to the $2 trillion deal that was under consideration during the Biden negotiations. So why are administration officials so committed to striking a deal composed of policies they’ve mostly opposed? Here’s their thinking:
You can’t spend till you cut: The deficit is sucking the oxygen out of everything else in Washington. It isn’t just powerful as an issue in and of itself, but as a response to any significant investments the administration might propose. If you believe we need to do more on jobs, or more on anything, you need finish the deficit conversation. And as an added bonus, if you finish the deficit conversation in a way that convinces the American people you’ve made sacrifices and forced government to live within its means, you have, at least in theory, more credibility when proposing new initiatives that would expand the size of government again.
It’s your only shot at stimulus: A big deficit deal could include mild stimulative measures such as unemployment insurance and an extension of the payroll tax cut. That’s not much, but it’s better than nothing. A small deficit deal, or no deficit deal, won’t include any extensions of stimulus.
It’s a way to control the timing: If you strike a deal that lasts 10 years, you can backload the savings to protect the recovery over the next three or four years. If you don’t strike a deal, Republicans are likely to take out their frustrations on the 2012 appropriations, which is to say we won’t have much long-term deficit reduction, which most economists think we need, but we’ll have a lot of immediate austerity, which most economists think would be poison for the recovery. It’s the worst of both worlds.
Getting Obama reelected is important: The White House believes striking a major deficit deal would be good for Obama’s reelection chances. They also believe that getting Obama reelected would be good for the priorities that Democrats care about. President Mitt Romney’s spending cuts would be worse than theirs, his hostility to taxes would be more implacable than theirs, and he’d repeal or hollow out both the health-care law and financial regulation.
Deficit reduction is good economic policy, both now and later: There’s something close to a consensus view that we need deficit reduction within the next five to 10 years or the odds of the market turning on us rise to unacceptable levels. But many in the White House also believe that a credible commitment to deficit reduction in the long and medium term could help the economy in the short term. In his July 2 radio address, for instance, Obama said, “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”
To put all this slightly differently, White House officials believe a big deficit reduction deal would do them enough good, both politically and economically, that it’s worth making very significant compromises on the details of that deal. If you thought getting to $4 trillion in deficit reduction was a Republican goal, you’re wrong. It’s the White House’s goal, and the only reason it might not happen is Republicans won’t let them do it.
As I write in my Bloomberg column today, the Republican Party has taken the exact opposite position as the administration: A deal won’t help them politically, and they don’t actually care about the deficit all that much, and so they’re much more interested in resisting compromises on the details than passing a big debt-reduction package. Put those two positions together and it’s pretty easy to see how the deal has moved so far to the right, and also why it’ll be very hard to close.